2017 (11) TMI 317 - AT - Income Tax

Reopening of assessment - whether once the reassessment found to be illegal, no liberty can be given to initiate fresh reassessment? - Held that - CIT(A)is not empowered to direct the AO for making fresh assessment. Therefore, we modify the order of the Ld. CIT(A). The liberty as given by the Ld. CIT(A) to the AO for making fresh reassessment is held to be not within the power of the Ld. CIT(A) u/s 251. Accordingly, same is hereby quashed. Thus, Ground no. 1 to 2 of this order is allowed in the terms as stated herein before.

Issues Involved:
1. Validity of notice issued under section 148 of the Income Tax Act, 1961.
2. Non-issuance of notice under section 143(2) of the Income Tax Act, 1961.
3. Directions by CIT(A) to initiate fresh reassessment proceedings.
4. Decision on merits of the case by CIT(A).
5. Disallowance of exemption claimed under section 54F of the Income Tax Act.
6. Disallowance of brokerage expenses.
7. Disallowance of indexed cost of expenses incurred on boundary wall and small two rooms with kitchen.
8. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Validity of Notice Issued under Section 148
The assessee contended that the notice under section 148 was issued without any "reason to believe" and was based on an audit objection, amounting to a change of opinion. The Tribunal found that the reopening of the assessment was not valid as the notice under section 143(2) was not issued within the stipulated time, rendering the reassessment proceedings void ab initio.

2. Non-Issuance of Notice under Section 143(2)
The Tribunal noted that the Assessing Officer (AO) failed to issue a notice under section 143(2) after the assessee had informed the AO that the original return filed should be treated as the return filed in response to the notice under section 148. This failure was deemed fatal to the reassessment proceedings, as upheld by various judicial pronouncements, including the Supreme Court's decision in ACIT vs. Hotel Blue Moon and the Delhi High Court's decision in Pr. CIT vs. Shri Jai Shiv Shankar Traders (P) Ltd.

3. Directions by CIT(A) to Initiate Fresh Reassessment Proceedings
The CIT(A) quashed the assessment order but gave liberty to the AO to initiate fresh reassessment proceedings by issuing a notice under section 148. The Tribunal held that the CIT(A) exceeded his jurisdiction as per section 251 of the Act, which does not empower the CIT(A) to direct the AO to make a fresh assessment. Therefore, the Tribunal quashed the CIT(A)'s direction for fresh reassessment.

4. Decision on Merits of the Case by CIT(A)
The assessee argued that the CIT(A) erred in not deciding the grounds on the merits of the case. However, since the Tribunal upheld the quashing of the assessment due to procedural lapses, the merits of the case became academic and were not adjudicated.

5. Disallowance of Exemption Claimed under Section 54F
The AO restricted the benefit of exemption under section 54F to ?2,939,001 instead of ?11,756,003, claiming that the assessee invested in four different flats, and the benefit should be restricted to one flat. This issue was not decided on merits due to the quashing of the reassessment proceedings.

6. Disallowance of Brokerage Expenses
The AO disallowed brokerage expenses of ?1,537,000 paid by account payee cheques towards the sale of agricultural property. This issue was also not decided on merits due to the quashing of the reassessment proceedings.

7. Disallowance of Indexed Cost of Expenses
The AO disallowed the indexed cost of expenses amounting to ?1,249,969 incurred on the boundary wall and small two rooms with a kitchen. This issue was not decided on merits due to the quashing of the reassessment proceedings.

8. Condonation of Delay in Filing the Appeal
The appeal filed by the assessee was barred by 28 days. After considering the affidavit and reasons provided by the assessee's counsel, the Tribunal deemed it proper to condone the delay and admitted the appeal for hearing.

Conclusion:
The Tribunal allowed the appeal partly, quashing the reassessment proceedings due to the non-issuance of notice under section 143(2) and holding that the CIT(A) exceeded his jurisdiction by directing the AO to initiate fresh reassessment proceedings. The issues on merits were not adjudicated due to the procedural lapses invalidating the reassessment.

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